The Raisin Bargaining Association et al v. Hartford Casualty Insurance Company, No. 1:2010cv00370 - Document 12 (E.D. Cal. 2010)

Court Description: MEMORANDUM DECISION On Defendant's Motions To Dismiss 7 8 signed by Judge Oliver W. Wanger on 5/25/2010. (Gaumnitz, R)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 EASTERN DISTRICT OF CALIFORNIA 6 7 THE RAISIN BARGAINING ASSOCIATION, et al., 8 1:10-cv-00370-OWW-DLB MEMORANDUM DECISION ON DEFENDANT S MOTION TO DISMISS (Docs. 7,8) 9 Plaintiff, 10 11 v. 12 HARTFORD CASUALTY INSURANCE CO., et al., 13 14 Defendants. 15 I. 16 On 17 January 27, 2010, INTRODUCTION. the Raisin Bargaining Association 18 ( RBA ), Glen S. Goto, and Monte Schutz ( Plaintiffs ) filed a 19 complaint in the Superior Court of California, County of Fresno, 20 against Hartford Casualty Insurance Company ( Defendant ) alleging 21 various state causes of action. 22 removed Plaintiffs action pursuant to 28 U.S.C. § 1441(b) on the 23 basis of diversity jurisdiction. (Doc. 1). Defendant Defendant filed a motion to dismiss Plaintiffs complaint on 24 25 (Doc. 1, Ex. B). March 5, 2010. (Docs. 7, 8).1 Plaintiffs filed opposition to 26 27 28 1 Docket number 7 is Defendant s motion to dismiss, and docket number 8 is the memorandum in support thereof. Citations in this order to the Motion to Dismiss refer to Defendant s memorandum. 1 1 Defendant s motion to dismiss on April 30, 2010. II. FACTUAL BACKGROUND. 2 3 (Doc. 10). Plaintiff RBA is a nonprofit California cooperative 4 association. (Complaint at 1). Plaintiffs Glen Goto and Monte 5 Schutz are and were, at all times relevant to this action, members 6 of the Board of Directors of RBA. (Complaint at 2). 7 Plaintiffs entered into contracts for insurance with Defendant 8 whereby Defendant agreed to insure Plaintiffs against various 9 claims brought against Plaintiffs for actions taken in RBA s 10 business capacity. 11 relevant to this action encompass coverage periods from at least 12 2005 to the present and obligate Defendant to provide defense and 13 indemnity for covered claims made against RBA. (Complaint at 1-3). 14 Beginning in (Complaint at 1, 3). or about January The insurance policies 2007, Richard Garabedian 15 ( Garabedian ), through counsel, sent several letters threatening 16 litigation and demanding almost $900,000.00 to settle a dispute 17 between 18 Director s decision not to recommend Garabedian to the Secretary of 19 the U.S. Department of Agriculture ( USDA ) for appointment to the 20 RBA s reserved seats on the Raisin Administrative Committee of the 21 USDA. 22 filed a complaint against Plaintiffs alleging defamation, slander, 23 and breach of the common law Fair Procedure Doctrine in Fresno 24 County Superior Court. RBA, Goto, and (Complaint at 3). Schutz concerning the RBA Board of On or about March 2, 2007, Garabedian (Complaint at 3). 25 In response to the Garabendian complaint, on or about April 4, 26 2007, Plaintiff s filed an Anti-SLAPP motion against Garabedian. 27 (Complaint at 4). 28 Plaintiffs On November 8, 2007, the Superior Court granted Anti-SLAPP motion and 2 struck Garabedian s entire 1 complaint. 2 The (Complaint at 5). complaint of 5 2007, Plaintiffs received a letter from Defendant agreeing, without 6 any reservations, to defend and provide indemnity to Plaintiffs. 7 (Complaint 8 attorneys 9 suggested/recommended to Defendant that Plaintiff s counsel, the (Complaint at 5). Plaintiffs Park Campagne, met and On or about March 19, with Defendant s Mohammed & the Lerner, counsel, Mandegary, 11 defending against the Garabedian complaint until resolution of an 12 Anti-SLAPP motion. 13 Park and Mandegary promised they would recommend to Defendant that 14 it should reimburse Plaintiffs for the fees incurred in defending 15 the Garabedian complaint. 16 that they performed all of the Anti-SLAPP work and expected to be 17 reimbursed by Defendant. 18 Plaintiffs invoices from March 2007 through September 2007 after 19 taking 20 (Complaint at 5). 21 (Complaint at 5). (Complaint at 5). write (Complaint at 5). at working on The complaint alleges that (Complaint at 5). downs remain who law additional Campagne, tendered 10 22 of immediately Garabedian s complaint to Defendant. Gordon Plaintiffs receipt 4 5). 2007, upon complaint at March that 3 firm in alleges the Plaintiffs allege Defendant expense of paid Plaintiffs. Defendant reimbursed Plaintiffs $38,891.42. On or about November 12, 2009, Defendant sent Plaintiffs a 23 document entitled Case Summary. (Complaint at 6). The Case 24 Summary refused full payment of legal fees incurred by Plaintiffs. 25 (Complaint at 6). 26 forth an incorrect account of the defense provided in connection 27 with the Garabedian complaint. (Complaint at 6). The Case Summary 28 asserts that Defendant paid a total of $69,366.48 in legal fees. Plaintiffs allege that the Case Summary set 3 1 (Complaint at 6). The Case Summary also indicated that Defendant 2 intended to collect the attorneys fees awarded by the Superior 3 Court in connection with Plaintiffs successful Anti-SLAPP motion. 4 (Complaint at 6). 5 Defendant s Case Summary on December 16, 2009. 6 Upon receipt of Plaintiff s response, Defendant asked Plaintiff to 7 forward a copy of the Case Summary. Plaintiffs sent Defendant a written response to (Complaint at 7). (Complaint at 8). 8 The total amount of fees and costs for work performed by 9 Plaintiffs counsel from January 2007 through September 2007 was 10 $77,056.81. (Complaint at 5). 11 work performed by Plaintiffs counsel was duplicative of the work 12 performed by Defendant s counsel. (Complaint at 6). Plaintiffs 13 allege that Defendant s actions were taken in bad faith, and that 14 Defendant had actual knowledge that its conduct constituted bad 15 faith. 16 According to the FAC, none of the (Complaint at 7). Plaintiffs allege they have incurred costs and attorney s fees 17 as a result of Defendant s actions. 18 also contend they have suffered great emotional distress as a 19 result fo Defendant s conduct. 20 contend that Defendant owes Plaintiffs $38,165.33, plus 10% APR as 21 well as punitive damages and attorneys fees incurred in the 22 prosecution of the instant law suit. (Complaint at 7). Plaintiffs Plaintiffs (Complaint at 5). III. LEGAL STANDARD. 23 24 (Complaint at 7). Dismissal under Rule 12(b)(6) is appropriate where the 25 complaint lacks sufficient facts to support a cognizable legal 26 theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th 27 Cir.1990). To sufficiently state a claim to relief and survive a 28 12(b) (6) motion, the pleading does not need detailed factual 4 1 allegations but the [f]actual allegations must be enough to raise 2 a right to relief above the speculative level. Bell Atl. Corp. v. 3 Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). 4 Mere labels and conclusions or a formulaic recitation of the 5 elements of a cause of action will not do. Id. 6 be enough facts to state a claim to relief that is plausible on 7 its face. Id. at 570. In other words, the complaint must contain 8 sufficient factual matter, accepted as true, to state a claim to 9 relief that is plausible on its face. Ashcroft v. Iqbal, --- U.S. 10 ----, ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal 11 quotation marks omitted). Rather, there must 12 The Ninth Circuit has summarized the governing standard, in 13 light of Twombly and Iqbal, as follows: In sum, for a complaint to 14 survive a motion to dismiss, the nonconclusory factual content, and 15 reasonable 16 suggestive of a claim entitling the plaintiff to relief. Moss v. 17 U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.2009) (internal 18 quotation marks omitted). Apart from factual insufficiency, a 19 complaint is also subject to dismissal under Rule 12(b)(6) where it 20 lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or 21 where the allegations on their face show that relief is barred 22 for some legal reason, Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 23 910, 166 L.Ed.2d 798 (2007). inferences from that content, must be plausibly 24 In deciding whether to grant a motion to dismiss, the court 25 must accept as true all well-pleaded factual allegations in the 26 pleading under attack. Iqbal, 129 S.Ct. at 1950. A court is not, 27 however, required to accept as true allegations that are merely 28 conclusory, unwarranted deductions 5 of fact, or unreasonable 1 inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 2 (9th Cir.2001). When ruling on a Rule 12(b)(6) motion to dismiss, 3 if a district court considers evidence outside the pleadings, it 4 must normally convert the 12(b)(6) motion into a Rule 56 motion for 5 summary 6 opportunity to respond. 7 907 (9th Cir. 2003). A court may, however, consider certain 8 materials-documents 9 incorporated by reference in the complaint, or matters of judicial 10 notice-without converting the motion to dismiss into a motion for 11 summary judgment. Id. at 908. judgment, and it must give the nonmoving party an United States v. Ritchie, 342 F.3d 903, attached to the 12 documents IV. Discussion 13 complaint, A. Plaintiffs Breach of Contract Claim 14 A claim for breach of contract under California law requires: 15 1) the existence of the contract; 2) plaintiff's performance or 16 excuse for nonperformance of the contract; 3) defendant's breach of 17 the contract; and 4) resulting damages. E.g. Armstrong Petrol. 18 Corp. V. Tri Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1391 n. 19 6 (Cal. Ct. App. 2004). 20 has stated a claim for breach of contract, a court must compare the 21 allegations of the complaint with the terms of the contract. 22 e.g., Waller v. Truck Ins. Exchange, Inc., 11 Cal. 4th 1, 5 (Cal. 23 1995). 24 25 26 27 28 In order to determine whether a plaintiff See, Interpretation of an insurance policy is a question of law. Id. As the California Supreme Court stated in Waller, The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the "mutual intention" of the parties."Under statutory rules of contract interpretation, the mutual intention of the parties at 6 1 the time the contract is formed governs interpretation. Such intent is to be inferred, if possible, solely from the written provisions of the contract. The 'clear and explicit' meaning of these provisions, interpreted in their 'ordinary and popular sense,' unless 'used by the parties in a technical sense or a special meaning is given to them by usage', controls judicial interpretation. " A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract. Courts will not strain to create an ambiguity where none exists. 2 3 4 5 6 7 8 9 11 Cal. 4th at 18-19 (citations omitted). 10 The provisions of the insurance contract central to this 11 dispute are contained in the Business Liability Coverage Form 12 found at pages 59 through 70 of Exhibit A to the complaint.2 13 Section A(1)(a) of the Business Liability Coverage Form provides, 14 in pertinent part: 15 We will pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury , property damage , or personal and advertising injury to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages....No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Coverage ExtensionSupplementary Payments. 16 17 18 19 20 (Complaint, Ex. A at 59). 21 at the Insured s Own Cost provides: 22 Section E(2)(d), entitled Obligations No Insured will, except at that insured s own cost, voluntarily make any payment, assume any obligation, or incur any expense, other that for first aid, without our consent. 23 24 (Complaint, Ex. A at 66). 25 /// 26 27 28 2 The original page numbers for Exhibit A are illegible. Page citations to Exhibit A contained within this order correspond to the pagination of the PDF document contained on the CM/ECF docket. 7 1 Section A(1)(a) confers on Defendant the right to control 2 defense of a claim, and section E(2)(d) establishes that, unless 3 Defendant consents to an expenditure, Defendant is not liable for 4 voluntary payments made by Plaintiffs in defense of a covered 5 claim. 6 77 Cal. App. 4th 341, 346 (Cal. Ct. App. 1999) (discussing no- 7 voluntary-payment provisions). 8 sufficient 9 consented 10 See, e.g., Jamestown Builders v. General Star Indem. Co., to to support a Unless the complaint alleges facts reasonable Plaintiffs payments inference to its that private Plaintiffs cannot state a claim for breach of contract. Defendant counsel, See id. 11 Defendant contends that Plaintiffs breach of contract claim 12 is barred as a matter of law, citing Truck Ins. Exch. v. Unigard 13 Ins. Co., 79 Cal. App. 4th 966, 976-77, 980 (2000) and Faust v. The 14 Travelers, 55 F.3d 471, 472 (9th Cir. 1995) for the proposition 15 that where...a policy contains a clear provision prohibiting 16 voluntary 17 incurred defense costs. 18 and Faust recite the well settled rule that no-voluntary-payments 19 provisions are enforceable under California law. Unigard, 79 Cal. 20 App. 4th 977; Faust, 55 F.3d at 472; accord Jamestown Builders, 77 21 Cal. App. 4th at 346; Belz v. Clarendon America Ins. Co., 158 Cal. 22 App. 4th 615, 627 (Cal. Ct. App. 2007); Low v. Golden Eagle Ins. payments, a carrier is not liable for (Motion to Dismiss at 8).3 voluntarily Both Unigard 23 3 24 25 26 27 Defendant asserts three arguments in support of its motion to dismiss Plaintiffs breach of contract claim: (1)Defendant is not liable for fees incurred pre-law suit; (2) Defendant is not liable for fees incurred pre-tender; and (3) Defendant is not liable for voluntary payments made by Plaintiff without Defendant s consent. (Motion to Dismiss at 5-8). Defendant s first and second contentions are not grounds for dismissal of Plaintiff s contract action. Assuming Defendant s first and second arguments are correct, the complaint may still state a claim for breach of contract with respect to costs incurred after Plaintiffs tendered defense of the Garabedian complaint to Defendant. 28 8 1 Co., 110 Cal. App. 4th 1532, 1544 (Cal. Ct. App. 2003). 2 enforcement of a no-voluntary-payments clause is premised on an 3 insurer's lack of consent to a given expenditure. 4 Cal. App. 4th at 628. 5 6 However, See Belz, 158 The complaint contains the following allegations concerning issue of Defendant s consent: 7 20. Plaintiffs...met with [Defendant s] Counsel, who suggested/recommended to Defendant that Plaintiffs counsel...remain working on defending against the Garabedian Complaint until the conclusion of the AntiSLAPP motion. 8 9 10 21. Acknowledging the Plaintiffs Counsel s experience with Anti-SLAPP motions, [Defendant s counsel] then promised they would recommend to Defendant that it should reimburse the Plaintiffs for their fees for defending against Garabedian s Complaint. 11 12 13 (Complaint at 5). 14 reimbursed Plaintiffs $38,891.42. 15 The complaint also alleges that Defendant (Complaint at 5). Plaintiffs allegations that (1) Defendant s counsel stated 16 they would recommend/suggest 17 counsel continue working on the Anti-SLAPP motion; (2) Defendant s 18 counsel 19 Plaintiffs be reimbursed; and (3) Defendant partially reimbursed 20 Plaintiffs for fees paid to Plaintiffs private counsel, taken 21 together, are sufficient to support a reasonable inference that 22 Defendant consented to and paid at least some of Plaintiffs 23 payments 24 representations 25 Plaintiffs attorneys work on the Anti-SLAPP motion for which 26 Defendant s attorney would recommend payments. 27 Defendant 28 failure promised to would Plaintiffs of consented to they to recommend private Defendant s to reimburse Defendant Plaintiffs Plaintiffs 9 to counsel disclosed that Defendant based on such that alleged agent/attorney that To the extent expenditures, for Plaintiffs Defendant s expenditures may 1 constitute a breach of Defendant s contractual duty to defend. 2 However, the complaint is ambiguous as to the extent and nature of 3 Defendant s obligation. 4 attorneys stated they would recommend that Plaintiff s private 5 counsel 6 Plaintiffs breach of contract claim must be DIMISSED, without 7 prejudice. 8 B. be reimbursed Plaintiffs allegation that Defendant s is insufficient to bind Defendant. Tortious Breach of Implied Covenant of Good Faith and Fair Dealing4 9 10 California law provides that every contract imposes upon each 11 party a duty of good faith and fair dealing in its performance and 12 its enforcement. 13 Cal. 4th 917, 937 (Cal. 2004). 14 the duty imposed by the implied covenant of good faith depends on 15 the purpose underlying a contract. 16 good faith and fair dealing cannot impose substantive duties beyond 17 those incorporated in the specific terms of a contract. 18 Bechtel National, Inc., 24 Cal. 4th 317, 349 (Cal. 2000). Although 19 breach of a specific provision of the contract is not a necessary 20 prerequisite to a claim for breach of the implied covenant of good 21 faith and fair dealing, Schwartz v. State Farm Fire & Casualty Co., 22 88 Cal. App. 4th 1329, 1339 (Cal. Ct. App. 2001), there can be no E.g. Jonathan Neil & Assoc., Inc. v. Jones, 33 The precise nature and extent of Id. The implied covenant of Guz v. 23 4 24 25 26 27 28 Plaintiff asserts two claims for breach of the implied covenant; an ordinary breach and a tortious breach. California law does not recognizes Plaintiffs distinction; either the refusal to defend is an ordinary breach compensable pursuant to contract remedies, or the refusal is an unreasonable action compensable pursuant to tort remedies. See Amato, 53 Cal. App. 4th at 831; but see Jones, 33 Cal. 4th at 940-41 (insurer s breach of the covenant of good faith and fair dealing did not sound in tort where tort remedies were unnecessary to protect insured s interests). Plaintiffs claim for ordinary breach of the implied covenant is subsumed within Plaintiffs breach of contract claim and the stand-alone claim is therefore DISMISSED with prejudice. 10 1 breach of the implied covenant with respect to benefits that are 2 not due under an insurance policy, Brehm v. 21st Century Ins. Co., 3 166 Cal. App. 4th 1225, 1235 (Cal. Ct. App. 2008) (citing Waller, 4 11 Cal.4th at 36). 5 Under California law, an insurer s unreasonable refusal to 6 defend an insured is considered a breach of the implied covenant of 7 good faith and fair dealing and is actionable as a tort. See, e.g., 8 Amato, 53 Cal. App. 4th at 831. 9 unreasonable breach of the implied covenant of good faith and fair the tort remedies Once an insured has established an 10 dealing, available vary depending on the 11 egregiousness of the insurer s conduct. 12 1375 (distinguishing remedies available in the context of ordinary 13 bad faith action from remedies available where insured establishes 14 malice or oppression).5 In order to plead a claim for tortious 15 breach of the implied covenant of good faith and fair dealing, a 16 complaint must allege facts which demonstrate a failure or refusal 17 to discharge contractual responsibilities prompted not by an 18 honest mistake, bad judgment, or negligence, but rather by a 19 conscious and deliberate act, which unfairly frustrates the agreed 20 common purposes and disappoints the reasonable expectations of the 21 other party. 22 Inc., 222 Cal. App. 3d 1371, 1395 (Cal. Ct. App. 1990). 23 defend, without more, does not constitute a breach of the implied 24 covenant. See Tibbs, 755 F.2d at Careau & Co. v. Security Pacific Business Credit, Refusal to E.g. Tibbs v. Great American Ins. Co., 755 F.2d 1370, 25 26 5 27 28 Plaintiffs claim for tortious breach includes allegations that Defendant acted with either malice, fraud, or oppression. (Complaint at 12-13). Because the complaint is insufficient to allege bad faith, a fortiori, the complaint does not state sufficient facts to allege malice, fraud, or oppression . 11 1 1375 (9th Cir. 1985)(citation omitted); accord Campbell v. Superior 2 Court, 44 Cal. App. 4th 1308,1319-1320 (Cal. Ct. App. 3 unreasonable breach of duty to defend constitutes a tort); Amato v. 4 Mercury Cas. Co., 53 Cal. App. 4th 825, 831 (1997) (same). 1996) (only 5 Plaintiffs contend that implicit in [Defendant s] obligations 6 to act fairly and in good faith toward Plaintiffs was their [sic] 7 duty to promptly and adequately reimburse Plaintiff as agreed. 8 (Complaint at 10). 9 evince Defendant s bad faith: 10 11 12 13 14 15 16 Defendant contends that the following facts 24. Subsequent to [Defendant s] payment of the $38,891.42 to Plaintiffs...[Defendant] sent a Case Summary to the Plaintiffs refusing full payment evincing [Defendant s] bad faith tactics...This Case Summary sets forth an incorrect account of the Defense provided....First, Defendant Hartford incorrectly states that the Plaintiff s law firm continued working on the case at the request of the RBA with the understanding it would not be paid by [Defendant]. (Complaint at 6). 25. In addition, [Defendant] improperly asserts in the Case Summary that it has paid a total of $69,366.48 in legal fees to the Plaintiffs. Yet, the RBA has received only $38,891.42...(Complaint at 6). 17 18 19 20 21 22 23 24 25 26 26. Further, despite the fact that [Defendant] acknowledges in its Case Summary that it will be filing a claim...to collect the attorneys fees that were awarded by the court following...the successful AntiSLAPP motion, it still fails/refuses in bad faith to pay the remainder owed to Plaintiffs. (Complaint at 6). 28. [Defendant] was put on notice of its bad faith tactics on July 30, 2007, when Plaintiffs counsel sent Ms. Menezes a letter setting forth [Defendant s] duties and obligations...The letter cited case authority for this proposition.6 (Complaint at 7). 32. [Defendant]...[requested] that Plaintiffs send [Defendant] a copy of its very own letter, which should have been in its file...This is further evidence of [Defendant s] bad faith and delay tactics...(Complaint at 8). 27 28 6 All three of the case citations contained in Plaintiffs counsel s letter were incorrect. 12 July 20 1 The statement Plaintiffs complain of in paragraph 24 of the 2 complaint does not evince bad faith. 3 demonstrates 4 Plaintiffs with respect to the amount due pursuant to the purported 5 arraignment between Defendant s counsel and Plaintiffs private 6 counsel. 7 arrangement, the opinion expressed in the Case Summary is not so 8 unreasonable as to demonstrate bad faith.7 a difference of The Case Summary simply opinion between Defendant and Given the equivocal allegations underlying the alleged 9 The Case Summary s accounting of funds paid in defense of the 10 Garabedian complaint is also insufficient to demonstrate bad faith. 11 Jones, 33 Cal.4 th at 938 ( billing dispute does not, by itself, 12 deny the insured the benefits of the insurance policy ) (citation 13 omitted). 14 Plaintiffs received and the total amount of defense costs state in 15 the Case Summary is attributable to the fact that, in addition to 16 reimbursing Plaintiffs, Defendant also retained and paid its own 17 counsel. 18 intended 19 indicative of bad faith. 20 attorneys fees 21 (Complaint at 22 Defendant). 23 Plaintiffs July 30 letter nor Defendant s request for a copy of The disparity between (Complaint at 5). to recover 5) in amount of reimbursement Nor is the fact that Defendant attorneys fees from Garabedian s estate It is undisputed that Defendant paid connection (discussing Finally, the with the Anti-SLAPP reimbursement neither Defendant s amounts motion. paid disagreement by with 24 7 25 26 27 28 Plaintiffs allege merely that (1) Defendant s counsel stated they would recommend/suggest to Defendant that Plaintiffs counsel continue working on the Anti-SLAPP motion; and (2) Defendant s counsel promised they would recommend to Defendant that Plaintiffs be reimbursed. (Complaint at 5). Plaintiffs allegations give no indication of whether Defendant s counsel s statement regarding reimbursement applied to future work, work already completed, or both. Nor does the statement suggest Defendant would accept the recommendation or that it had committed to pay for work on the Anti-SLAPP motion. 13 1 the Case Summary from Plaintiffs is sufficient to transform what 2 appears to be, at most, and ordinary breach of a contract term, 3 into a breach of the duty of good faith and fair dealing. 4 Careau, 222 Cal. App. 3d at 1395 (claim for breach of the implied 5 covenant 6 negligence). 7 covenant of good faith and fair dealing is DISMISSED, without 8 prejudice. 9 single claim for breach of the implied covenant of good faith and requires more than allegations of bad E.g. judgement or Plaintiffs claim for tortious breach of the implied Plaintiffs will be given an opportunity to re-plead a 10 fair dealing. 11 D. Plaintiffs Waiver/Estoppel Claim 12 Waiver and estoppel are distinct concepts. Waiver exists when 13 an insurer intentionally relinquishes a known right. E.g. State 14 Farm Fire & Casualty Co. v. Jioras, 24 Cal. App. 4th 1619, 1628 n.7 15 (Cal. Ct. App. 1994). 16 detrimentally relies on the conduct or statements of another. E.g. 17 Waller, 11 Cal. 4th at 33. Estoppel is applicable where one party 18 Defendant cites Manneck v. Lawyers Title Ins. Corp., 28 Cal. 19 App. 4th 1294, 1303 (Cal. Ct. App. 1994) for the proposition that 20 coverage under the insurance policy cannot be created by waiver or 21 estoppel. 22 Court of Appeal explained that: 23 24 25 26 (Motion to Dismiss at 10). In Manneck, the California The rule is well established that the doctrines of implied waiver and of estoppel, based upon the conduct or action of the insurer, are not available to bring within the coverage of a policy risks not covered by its terms, or risks expressly excluded therefrom and the application of the doctrines in this respect is therefore to be distinguished from the waiver of, or estoppel to assert, grounds of forfeiture. 27 28 Cal. App. 4th at 1303 (citation omitted)(emphasis added). 28 14 1 Accordingly, Plaintiffs waiver/estoppel claim is DISMISSED, with 2 prejudice.8 3 E. 4 Plaintiff s Quasi-Contract Claim California courts turn to the legal fiction of quasi- 5 contract to prevent unjust enrichment. Earhart v. William Low 6 Co., 25 Cal.3d 503, 515 n.10 (Cal. 1979). 7 Plaintiffs quasi-contract claim is unclear, as Plaintiffs fail to 8 allege facts sufficient to establish that Defendant ever consented 9 to have Plaintiffs private counsel conduct work on Defendant s 10 behalf. To the extent Plaintiffs quasi-contract claim is based on 11 the insurance agreement, it is well settled that an action based 12 on an implied-in-fact or quasi-contract cannot lie where there 13 exists between the parties a valid express contract covering the 14 same subject matter. 15 Republic Indemnity Co., 44 Cal. App. 4th 194, 203 (Cal. Ct. App. 16 1996); accord Eisenberg v. Alameda Newspapers, Inc., 74 Cal. App. 17 4th 1359, 1387 (Cal. Ct. App. 1999) (citing Shapiro v. Wells Fargo 18 Realty Advisors 152 Cal. App. 3d 467, 482 (1984)); Wal-Noon Corp. 19 v. Hill, 45 Cal. App. 3d 605, 613 (1975)). 20 contract action is DISMISSED without prejudice. 21 F. The precise nature of E.g. Lance Camper Manufacturing Corp. v. Plaintiffs quasi- Plaintiffs Quantum Meruit Claim 22 Quantum meruit is a quasi-contractual claim which rests upon 23 the equitable theory that a contract to pay for services rendered 24 is implied by law for reasons of justice. 25 Inc. v. First Alliance Mortgage Co., 41 Cal. App. 4th 1410, 1419 E.g. Hedging Concepts, 26 27 8 28 At oral argument, Plaintiffs counsel conceded that dismissal with prejudice is appropriate for this claim. 15 1 (Cal. Ct. App. 1996).9 The complaint does not allege facts 2 sufficient to establish that Defendant consented to the services 3 provided by Plaintiffs private counsel. 4 which Defendant received services for which it did not pay is 5 unclear, as its is undisputed that Defendant reimbursed 6 Plaintiffs a substantial amount. 7 claim is DISMISSED without prejudice. 8 G. Further, the extent to Plaintiffs quantum meriut 9 Breach of Oral Contract Claim Plaintiffs claim for breach of oral contract fails to state 10 facts sufficient to support a plausible inference that any oral 11 contract was entered into by Plaintiffs and Defendant. 12 Plaintiffs allegations are inherently implausible, as the 13 complaint states that prior to the occurrence of the actions 14 giving rise to [the Garabedian complaint]...Defendant agreed to 15 accept defense of the [Garabedian complaint]. 16 16). 17 prejudice. 18 H. 19 (Complaint at Plaintiff s oral contract claim is DISMISSED without Negligence Claim A claim for negligence requires a plaintiff to plead duty, 20 breach, causation, and damages. See, e.g., Ortega v. Kmart Corp., 21 26 Cal.4th 1200, 1205 (Cal. 2001). Plaintiffs advance the 22 following allegations in support of their negligence claim: 23 73. At all times relevant, the conduct of Defendant was negligent and constituted breach of their duties, including, but not limited to, statutory duties, common law duties, and other duties mandated by law. Defendant, and their agents, represented that they were experts and held themselves out as having superior 24 25 26 27 28 9 Plaintiffs rely on the same authorities in opposition to the motions to dismiss the quasi-contract, oral contract, and quantum meruit claims. Plaintiffs authorities discuss the general rule that oral contracts may be enforceable. 16 1 2 3 4 5 6 7 training education, and knowledge in the insurance industry. In view of the relationship between the parties and the representations of Defendant and their agents, Plaintiff relied totally on Defendant to timely, fairly, and adequately reimburse Plaintiffs under the terms of the contracts of insurance. (Complaint at 17). 74. Defendant failed to reimburse Plaintiffs as agreed. Because of [Defendant s] failure to comply with the agreement, and Plaintiffs reliance thereon, Plaintiffs were forced to pay counsel to defend them in the underlying suit without the promised reimbursement. (Complaint at 17). 8 9 10 11 12 13 14 75. [Defendant] had, and has, a duty to Plaintiffs, and all other respective insureds, to act at all times with due and reasonable care...Defendant failed to do so. (Complaint at 17). 76. [Defendant] breached its duty by failing to act in a manner consistent with the standard of care required by...law...(Complaint at 17). 77. As a direct and proximate result of Defendant s negligence, Plaintiffs have suffered damages...(Complaint at 17). 15 Plaintiffs allegations are insufficient to establish a duty 16 independent of the insurance contract. Further, Plaintiffs 17 conclusory allegation regarding Defendant s status as an 18 insurance expert is not related to the breach of duty 19 Plaintiffs allege. Rather, the breach of duty alleged by 20 Plaintiffs is failure to comply with a duty imposed by a contract 21 term. Negligence based on a insurer s breach of a contract term 22 is not a cognizable cause of action under California law. 23 Sanchez v. Lindsey Morden Claims Services, Inc., 72 Cal. App. 4th 24 249, 254 (Cal. Ct. App. 1999); see also Guz, 24 Cal.4th at 34925 350 (contract does not impose substantive duties beyond those 26 incorporated into the specific terms of an agreement). 27 28 17 1 Plaintiffs negligence claim is DISMISSED with prejudice.10 2 I. State Law Statutory Claims 3 Plaintiffs attempt to assert claims for relief on behalf of 4 the public in connection with Defendant s alleged violation of 5 California Business and Professions Code section 17200 et seq., 6 Title 10, California Code of Regulations section 2695.7, and 7 California Insurance Code section 780. 8 Defendant correctly points out that California law does not 9 provide a private right of action for violations of California (Complaint at 18). 10 Insurance Code section 780 or the attendant regulations. (Motion 11 to Dismiss at 14-15). 12 regulations adopted under its authority provide a private right 13 of action. 14 4th 715, 724 (Cal. Ct. App. 2001). 15 under California Business and Professions Code section 17200 et 16 seq. based on an insurer s conduct, a plaintiff must allege 17 something more than a mere violation of the California Insurance 18 Code.11 19 Dist. LEXIS 121768 (C.D. Cal. Dec. 9, 2009) (collecting cases in 20 which California courts sustained claims against insurance 21 companies pursuant to section 17200). 22 allegations of fraud and misconduct are insufficient to meet Neither the California Insurance Code nor Rattan v. United Servs. Auto. Ass'n, 84 Cal. App. In order to state a claim See, e.g., Burdick v. Union Sec. Ins. Co., 2009 U.S. Plaintiffs conclusory 23 24 10 25 At oral argument, Plaintiffs counsel conceded that dismissal with prejudice is appropriate for this claim. 26 11 27 28 Defendant cites Textron Financial Corp. v. National Union Fire Ins. Co., 118 Cal. App. 4th 1061, 1070-71 (Cal. Ct. App. 2004) in support of its motion to dismiss Plaintiffs section 17200 claim. Defendant fails to acknowledge that the holding in Textron was subsequently disapproved of in several cases. Counsel has a duty to acknowledge adverse authority. See Fed. R. Civ. P. 11. 18 1 federal pleading requirements. 2 Plaintiffs statutory claims are DISMISSED with prejudice.12 3 J. Reformation Claim 4 Iqbal, 129 S.Ct. at 1949. Reformation may be had for a mutual mistake or for the 5 mistake of one party which the other knew or suspected, but in 6 either situation the purpose of the remedy is to make the written 7 contract truly express the intention of the parties. 8 Lemoge Electric v. County of San Mateo, 46 Cal. 2d 659, (Cal. 9 1956); Alderson v. Ins. Co. of N. Am., 223 Cal. App. 3d 397, 412 E.g. 10 (Cal. Ct. App. 1990). An insurance policy may be reformed to 11 limit or exclude coverage if such was the intention of the 12 parties. Alderson, 223 Cal. App. 3d at 412. 13 Initially, Plaintiffs reformation claim must be dismissed 14 because Plaintiffs conclusory allegations of mutual mistake and 15 false representations are not supported by any facts stated in 16 the complaint. 17 Plaintiffs claim for reformation must be dismissed because it is 18 predicated on the assumption that the written agreement between 19 Plaintiffs and Defendant does not require Defendant to reimburse 20 Plaintiffs for costs incurred in defense of an authorized claim. 21 (Complaint at 20). 22 plain language of the contract is sufficient to establish 23 Defendant s duty to reimburse Plaintiffs for expenditures 24 consented to by Defendant. 25 Defendant did in fact reimburse Plaintiffs some of the funds paid (Complaint at 20). More importantly, however, As discussed above in section IV(A), the Further, it is undisputed that 26 27 12 28 At oral argument, Plaintiffs counsel conceded that dismissal with prejudice is appropriate for this claim. 19 1 in connection with defense of the Garabedian complaint. 2 (Complaint at 5). 3 contract creates a duty to reimburse Plaintiffs for authorized 4 expenditures; rather, the dispute between Plaintiffs and 5 Defendant concerns when this duty arose, and which of Plaintiffs 6 expenditures were actually authorized. 7 is unnecessary, and Plaintiffs claim must be DISMISSED with 8 prejudice.13 The instant action is not about whether the V. CONCLUSION 9 10 Accordingly, reformation For the reasons stated, IT IS ORDERED: 11 1) 12 Plaintiffs breach of contract claim and claim for declaratory relief are DISMISSED, without prejudice; 13 2) 14 Plaintiffs claim for breach of the implied covenant of good faith and fair dealing is DISMISSED, with prejudice; 15 3) Plaintiffs claim for tortious breach of the implied 16 covenant of good faith and fair dealing is DISMISSED, 17 without prejudice; 18 4) 19 Plaintiffs claim for waiver/estoppel is DISMISSED, with prejudice; 20 5) 21 Plaintiffs quasi-contract claim is DISMISSED, without prejudice; 22 6) 23 Plaintiffs quantum meruit claim is DISMISSED, without prejudice; 24 7) 25 Plaintiffs claim for negligence is DISMISSED, with prejudice; 26 27 13 28 At oral argument, Plaintiffs counsel conceded that dismissal with prejudice is appropriate for this claim. 20 1 8) Plaintiffs 2 statutory claims are DISMISSED, with prejudice; 3 10) 4 Plaintiffs claim for breach of oral contract is DISMISSED, without prejudice; 5 11) 6 Plaintiffs claim for reformation is DISMISSED, with prejudice; and 7 12) Plaintiffs shall lodge a formal order consistent with 8 this decision within five (5) days following electronic 9 service of this decision by the clerk. Plaintiff shall 10 file an amended complaint within fifteen (15) days of the 11 filing of the order. 12 within fifteen (15) days of receipt of the amended 13 complaint. Defendant shall file a response 14 15 16 IT IS SO ORDERED. Dated: hkh80h May 25, 2010 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 21

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